Bear Markets Revisited

Nifty, off the Dec/Jan lows and above the trend line from the highs has prompted many to conclude that the low is IN. This and the interesting (to me) discussion on the Third Eye’s blog (here) prompted me to summarise the possible alternatives in Nifty.

The last time I did so in August 2011 (here), I felt that the major C will be a failure/subdued as it is difficult to see the Nifty 2008/9 lows again after the major inflation, the decent growth in GDP and the distressed valuations at those lows. Nothing much has changed since then as we probably ended the “c” of C in August itself and we may be now in “d” of C or may have ended the same in Feb/Mar.

I would like to look at 4 possible counts (three of them similar in ST implications) on the Nifty/Sensex and the arguments for and against:

(1) VP’s Diametric: (here) C over at 45xx. Since C was not impulse, triangle or diametric will follow; Currently in D; Similarity to 1992-2003 cycle; expecting till 2015; Between 1988-92, Index (Sensex) went up by 11 times and corrected thereafter for 11 years; and between 2003-7, it went up by 7 times and hence can correct for 7 yrs thereafter.. Till then D is not expected to make new high, but E & G can make new lows and F can make new high.

For: VP is a leading neo-wave practitioner. Anything he says therefore needs to be watched

Against: Why should the 2008-15 corrective mimic the 1992-2003 corrective? Shouldn’t they alternate?

(2) VP’s Watch List: (Also happened to be one of my favourite bear market scenarios earlier) Extracting Triangle from Mar 2009-Oct/09-May/10-Jan/11-Aug/11-March/12 forming SHS with NL around 4700-4800 lvls… (Quite bearish implications – target of around 1500 points off from 4800). Alternatively, a rising NL (as below) with targets of ~4000

For: Same as above

Against: (i) The equality of time for all legs makes a diametric better choice than a triangle. If so, then we have two more legs to finish the major B itself. In which case, the subsequent C could be weak and possibly fail at say 61.8% (Logic being that when time taken for market correction is very long, it substitutes for the price correction).

(ii) The price damage done at 45xx especially for the mid-caps and small-caps is pretty severe. Filling the target of such a large SHS has seriously bearish implications, removing all the gloss from the India Shining and in fact could lead to a confidence crisis & long hibernation at low levels. While it is not out of question (particularly going by my own perception of the governance of the country), I would like to reject it for the pessimism it brings to the thought process

(3) KRG’s August’ 2011 Count: (and surprisingly still alive? and therefore continues to be my preferred scenario) ...C on-going since Jan/11 or Nov/10: Likely timing to end... Jun-Sep 2012 (1/2 of A+B i.e. 3 yrs) Price Target 4500-3900 with possible failure at 4800. Completed three legs of triangle (by August) and possibly the fourth in March. Last leg of C perhaps has started. Since 45xx is already seen in “c” of C; the triangle may be a contracting one and the “e” of C could stop before 49xx. A slow drift down in next three months also fits in with the timelines as above and popular negative mood of Sell in May and Go away etc..

For: This ensures that we stay above the major election gap of 2009 which many pundits said that we will not see again. And we have spent enough (?) time in correction so that we should get back to new rally

Against: (i) Do the internals of the structure comply to neo-wave. May be a neo-wave expert can comment

(4) Anonymous/Shailesh: (here) C over at 4675 and a large X has started with the first being a zigzag which broke the b-d trendline. The second of X is on now and needs to stay above this TL. After the c of X, 2nd corrective to follow. Logic being double the time of the previous/post impulse; large amount of time would mean further corrective and C failure can lead to running correction for the second corrective. X & 2nd corrective will meander in a large range with 4500 as bottom, new highs and the promise of a mega rally from 2016!

For: This seems to fit all the neowave rules. The timing of C has equalled the A. Though, severe failure of C is a rarity in neo-wave, potential of a large X forming obviates the need for a very strong market momentum despite such failure. 

Against: Should such a rarity be accompanied by some major event?

The difference between the three similar counts (1,3 & 4 above) is the longer term  implication. In the ST they are all looking at a scenario of the major Low is in or nearby.